Shares of social media platform Reddit soared 48 per cent higher during its debut trading day on the New York Stock Exchange, closing at $50.44. This surge comes after Reddit priced its shares at $34 each, near the top end of the marketed range, valuing the company at over $9 billion.
The IPO, one of the largest ever by a social media platform, offered 22 million shares, with some being made available to Reddit’s users in a unique move, although the uptake has not been disclosed.
Founded nearly two decades ago, Reddit has risen to become one of the most popular websites globally, boasting over 73 million users as of December 2023. However, the company’s IPO filing has reignited questions about its ability to monetize its platform, which primarily facilitates user-generated content and discussions without a subscription fee.
Despite efforts to attract advertisers through visual enhancements in 2017, Reddit has struggled to turn a profit for its first two decades. Yet, a potential breakthrough seems on the horizon, centred around leveraging artificial intelligence (AI) models. Companies like OpenAI have shown willingness to pay for access to Reddit’s vast dataset to enhance their AI capabilities, with Google reportedly paying $60 million for such access. Reddit has also secured licensing deals exceeding $200 million over the next few years.
The prospect of profitability, however, is accompanied by regulatory scrutiny and legal challenges. The US Federal Trade Commission (FTC) is investigating Reddit’s data licensing practices, while mobile phone giant Nokia has accused the platform of patent infringement. Additionally, Reddit’s SEC filing identifies its user base as a potential risk factor, highlighting the dependence on user-generated content and engagement for its business model.
Despite occasional user backlash over platform changes, including a blackout in 2023, Reddit’s dominance in the social media landscape remains largely unchallenged. While user discontent persists, the absence of a significant competitor offers Reddit some stability in tying its market value to its user base.
(With inputs from agencies)
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